REPRINTED by permission of CAHU
http://camsdev.net/cahu/magazine/september-october-2020/?page=4
By: Dorothy Cociu, RHU, REBC, GBA, RPA, LPRT, CAHU Vice President, Communications
The year 2020 will be a memorable one for many reasons; most of them not positive, and for many, devastating. The COVID-19 Pandemic has caused nation-wide layoffs equaling the great depression, people are struggling to pay their rent, pay their mortgages, and feed their families. As we all know, the pandemic forced the closures of hospitality businesses, hotels, restaurants, gyms, hair salons, and many other industries for weeks or months. The restaurant industry was reduced to take-out only, then allowed to reopen at 50% capacity, only to be closed again, followed by outdoor dining only. So if you’re employed in one of these hardest-hit industries, you are likely just trying to barely survive. But those aren’t the only businesses affected, of course. Manufacturing and production facilities that were non-essential businesses were shut down, and even after massive cleaning efforts and purchasing personal protective equipment (PPE), putting in policies and social distancing, some still have not yet returned to work. Some, however, have been offered the opportunity to return to work, yet declined to return (due in part to being paid by federal unemployment benefits through July more money than they would have been paid on the job). Many office workers have been and will continue to be working from home, when able, but this just continues to impact our economy and our well-being.
State and National Unemployment Numbers
California saw a record-breaking unemployment rate in April, 2020 of 16.4%, which skyrocketed from March’s 5.5%, lowering slightly to 16.3% in May. In June, California improved to 14.9%. Nationally, we increased from 4.4% in March to 14.7% in April, 13.3% in May and 11.2% in June. These are not numbers we can brag about.
Is the Employer-Based Health Care System in Jeopardy?
There has been a lot of press on the effectiveness of the employer-based health care system, most recently due to the pandemic layoffs. This system, which covers nearly half of the insured in our country, is something that needs to be preserved and employers should be applauded for the coverage they offer, yet the single payer advocates are back on the forefront, slamming its effectiveness and looking to replace it with something unrealistic and costly… Single Payer. In mid-August, the anticipated report from the “Healthy California For All” committee was released, which warrants serious review. (We’ll address this further later on in this article). The press is also hitting heavily
on the fact that some insurers are seeing high profits during the first two quarters of the pandemic, with no discussion on the fact that they will have to pay for future claims, once pandemic-delayed services are rescheduled. And during the pandemic, we are not seeing huge increases in premium rates. In fact, just the opposite, and multiple carriers have been going out of their way to keep people enrolled, with forgiveness on premiums for small employers, extending marketplace open enrollment, and lightening their normal underwriting guidelines to help people get or stay insured. The bottom line is, there have been numerous reports with misinformation, and I’d like to attempt to set the record straight.
A Look Into the Reality
So is all of this true? Are so many uninsured because of the employer-sponsored health plan market? Are employers to blame? Are the insurance companies profiting while hospitals and providers are suffering? Are the uninsured numbers true and do they tell the whole story? Sadly, only part of the stories are being told. My job today is to try to point out some of the realities, and help you to understand the facts, particularly as we head into the fall election cycle, where we know all of these things and more will be battled in the press, TV advertising and debate stages.
I spoke with Mike Ferguson, CEO of the Self-Insurance Institute of America, who commented: “Yes, people have been laid off and losing coverage, because of the situation, but what’s important is to gather the market segments, and how it intersects with the self-funded market. We’ve been hav-ing monthly calls with our Diamond sponsors, which are our big stop loss carriers, TPA firms, etc., [representing many large, self-funded employers]. At the beginning of this, since March, there was a concern the plan participant count was going to drop dramatically, but as we got into this, we’re not seeing this. We’re not seeing a significant erosion in plan population… Meaning, people are not getting laid off, and they are getting their benefits taken care of. Now, keep in mind, in the self-funded world, mostly you’re not dealing with companies with fewer than 50 employees. The under 50 employee market, arguably, a lot of those types of companies are more susceptible to layoffs…. Because they are in the hospitality industries, gyms, or things with higher degree of restrictions [such as] restaurants, hotel workers, etc… they are getting laid off. Most are not part of a self-funded health plan. In our market, the self-insured market, there has not been a significant erosion in plan population….”
But the employer-based heath insurance marketplace also covers small, mid-size and large groups that may not be self-insured, so I want to also mention how important that coverage is to workers. And if they are laid off due to COVID-19 (or any other reasons), it’s important to note that they do have options available to them, quite often without a lapse in coverage. They can enroll in a Marketplace plan, which the ACA set up for just these reasons… Here in California, we offer Covered California, which is the most successful ACA marketplace in the country. Covered California also, incidentally, welcomes the services of insurance agents, who can assist these individuals when they do lose coverage, and direct them to subsidized health plans or even Medi-Cal.
Press Hot Topics
During this time, as people fear most about getting sick, the press has been hitting heavily on the pandemic’s causing massive health insurance coverage losses, and reporting the “greatest health insurance losses in American history.1 In this footnoted article, Families USA reported that because of job losses between February and May of this year, 5.4 million laid-off workers became uninsured, and re-ported that these recent increases in the number of uninsured adults are 39% higher than any annual increase ever recorded. The New York Times later picked up this story and added to it, citing that Kaiser Family Foundation has estimated that 27 million Americans have lost coverage in the pandemic, and reported that the Urban Institute and the Robert Wood Johnson Foundation project-ed that by the end of 2020, 10.1 million people will no longer have employer-sponsored health insurance or coverage that was tied to a job they lost because of the pandemic.2
In addition, several news outlets have reported that insurance carriers in the fully insured markets are reporting huge profits due to COVID-19. In Forbes, August 6, 20203, it was reported that “In some parts of the country, hospitals are being overwhelmed by an influx of patients and many have announced staggering financial losses. Meanwhile, insurers have been able to avoid shelling out big money for surgeries and other complicated medical procedures while people have been less likely to visit their doctors over the past couple of months.” Forbes went on to report that “UnitedHealth Group saw its net income double from $3.4 billion to $6.7 billion, while Anthem’s grew two-fold, climbing from $1.1 billion to $2.3 billion.” They also stated that CVS Health (which owns Aetna and other brands, including pharmaceutical companies) add-ed an extra billion dollars in net income in the second quarter of this year, increasing from $1.9 billion to $3 billion. There were others, including Humana, discussed in the article.
The press makes it sound like all employers are experiencing massive layoffs. They are not. Industries like the trucking and distribution industries are booming, be-cause they are supplying groceries and other needed items to retail markets. Grocery retailers are booming and can’t find enough workers to fill of the jobs. And self-insured employers, for the most part, mostly due to their size, are not seeing massive layoffs like the smaller employers, as discussed above. Generally speaking, the self-insured market has seen less layoffs than the fully insured and smaller group market. What seems to be most common is layoffs in the under 50 employee mar-ket; small employers are definitely the hardest hit. Of all of my own self-funded clients, only one had layoffs, which resulted in a loss of about 30 to 40 people; so not significant numbers.
Next, let’s talk about the hospitals suffering and the insurance carriers profiting during these times. I find it quite interesting that none of the articles I read mentioned anything about the fact that just because people may be putting off services/surgeries and other medical procedures now temporarily, does not mean that they won’t happen. Insurance companies need to be prepared for when they do… I read no mentions of reserves for such times… So let’s discuss that.
It’s true that many hospitals are hurting and have a shortage of beds, PPE, and medical providers. Our health care heroes continue to be just that- our heroes; graciously and unselfishly serving the needs of their patients, often at the expense of their families. Many are sleeping in garages, cars or hotels during this time to keep their families safe. No one is arguing that, and I, as well as all of CAHU, thanks them for their never-ending love, support and care of our friends and families in the hospital and medical facilities. In my opinion, they should all be given “combat pay” and should be compensated for their actions accordingly, and more importantly, they should be given ample support for their families, their children in day-care, and for all of their personal suffering. However, hospitals and other medical providers are not making the extra income they normally do for elective surgeries and other more profitable services, leaving them in a financial bind. This of course some-times leads to price increases and gouging on other services, but that is a topic for another day; another article. At this point, I want to focus on the goodness of the healthcare workers and all of the other essential workers in the medical facilities, from cafeteria workers to maintenance and cleaning staff, and everyone else who are there every day during this pandemic crisis. In addition, I also want to mention that many health insurance companies have been doing everything they can to get and keep people enrolled throughout this pandemic.
Insurance Carriers & Reserves
Insurance companies have been made out to be the bad guys in the news, and although there are times when I’m not happy with them, I must point out the obvious to anyone who works in the health insurance industry. To us, this may seem obvious, but to the general public, they often know what they read in the press, even if it’s far from reality. I’m speaking not only as a health benefits broker and consultant, but also as a former TPA executive.
Yes, it’s true many insurance companies may be reporting higher than normal profits, but they should be reserving much of those profits for future claims… Just because people are not scheduling surgeries and other procedures now, or haven’t since March, when the pandemic shut us down, doesn’t mean that they won’t have them. Even now in August, people are starting to schedule their procedures. They may not be until the fourth quarter, and some may even be put off until after the first of the year, but they likely will happen. So the carriers need to have funds set aside for the future claims. And if a plan is self-insured, they, too will need to set aside reserves for these future claims expenses. And, the reality is, here in California, we have medical loss ratio (MLR) requirements for fully insured carriers, which simply stated, requires that carriers spend 80-85%% on direct patient care, leaving only the remaining 15-20% for administration and profit. Why isn’t that in the media? Existing California law requires health plans to annually submit to the federal Department of Health & Human Services (DHHS) ratios of incurred losses to earned premiums or MLRs, and requires beginning in 2012, health plans and health insurers offering group or individual coverage to provide an annu-al rebate to enrollees if an MLR is less than 85% for its large group business, or 80% for its small group or individual business.
To reinforce the reality, I asked some industry experts for their opinions on this. “The health insurance companies are inevitably experiencing a very short term jump in profitability simply due to the fact that their expenses have been lowered due to the cur-rent pandemic,” stated Brad Davis, Vice President, Legislation, for the California Association of Health Underwriters (CAHU). “Those ‘profits’ will soon be used to pay the claims that have been pent up due to the stoppage of non-essential procedures and vis-its. Any wise observer should look at this situation with the long view and not make sweeping generalizations based on 1 or 2 sets of quarterly earnings reports. Assuming no major change in historical average consumer demand for services, we fully expect to see these profits returned to the consumer quite literally as re-bate checks in the Spring and/or a flattening of the premium in-crease curve.”
In the self-insured marketplace, which I literally grew up in, having run a self-funded TPA for many years, and continuing to support self-funding in the marketplace, I currently have a good percentage of self-funded large groups in my book of business. Most have seen a serious reduction in claims expenses during the second and third quarters of 2020. However, we have advised them not to spend the money they are saving… They should be reserving it for the claims that they will likely see as the pandemic gets more under control and people feel safer and are more willing to see their doctors and schedule their procedures. Mike Ferguson, CEO of the Self-Insurance Institute of America, stated: “ There is a bit of apprehension, but so far so good, claims are down now, but are in the 4th quarter [or later] are we going to have a tsunami of health care claims?” That’s what we’re planning for.
So a word to the wise… don’t assume large profits for insurance companies are long-term. It is likely that, as Brad said, we should be a wise observer and not make sweeping generalizations based on press comments.
Attack on the Employer-Based Health Care System
The most effective, most well-liked system we have is the employer-based health care system. It works. Employers like to offer health benefits, because it helps to attract and retain employees, and prospective employees analyze health plans and other employee benefits almost as much as salaries. And yet, with current economic and unemployment statistics, it’s being attacked from all sides.
“The employer-based health insurance system in the U.S. is robust and responsible for almost 50% of all insured in America,” stated Brad Davis. “The other half is a mix of public programs like Medicare, Medicaid, and government workers. Private employers offer health insurance to recruit, retain, and boost the productivity of its workers. Hospitals and physician groups are also reliant on a good mix of privately insured to subsidize their publicly insured patients.”
It’s important to note that laid off employees do have options, and the market has responded positively, which the press is not reporting. “Even during the biggest health crisis in a century, the insurance market responded quickly to sustain coverage for consumers throughout California. Our members reported that most, if not all, of the insurance companies, have relaxed the rules to keep as many people covered as possible,” stated Maggie Stedt, President of the California Association of Health Underwriters (CAHU).
The current employer-based health care system is strong and offers a variety of coverage options. Employers are perfectly positioned to determine what their employees want and need.
Options Available to Laid Off Workers
It’s important to note that here in California, Covered California has reported low premium increases for upcoming renewals, which is welcome to hear. “Despite the volatility of the current economy,” stated Maggie Stedt, “Covered California reported that all 11 carriers will return to the individual market with some plans even expanding into new regions. Even during a pandemic, the average premium increase statewide will be less than one percent. Further, consumers that use the professional services of an agent to shop within their current metal tier, can save an average of 7%.” So why isn’t this being reported in the media?
It’s true that some employees have been laid off and may have lost their group health insurance, but the reality is, they really don’t have to be uninsured!
Of course, the employer (if over 20 employees) offers COBRA (and Cal-COBRA in California for smaller groups), but the cost of often rich employer-provided benefits may not be affordable for a laid off employee. But that’s one of the reasons we have the Affordable Care Act (ACA), isn’t it? If someone has lost coverage due to a layoff, that is a qualifying event to enroll in their state’s Marketplace, which is Covered California here in this state, they can choose from many plans and premium options, and quite often qualify for either a subsidized plan or no-cost Medi-Cal. The reality is that all you have to do is apply! Many employees that are offered coverage, which has been deemed “affordable” by the ACA, simply choose not to enroll. CAHU understands that what the ACA deems as “affordable” may not be affordable to all employees, and we understand that the high cost of health insurance is due to the high cost of medical care. That’s why agents are here to help guide those individuals into coverage they can afford.
“There are so many safeguards in place to ensure universal access to health insurance that a true loss of insurance is rare and unlikely,” said Brad Davis. “An experienced and/or informed agent should be able to successfully walk any person or family through a litany of options, including state-assisted programs like Medi-Cal or Covered California, as well as private options like COBRA, or plans directly from a host of competitive carriers that cannot deny coverage.”
Most fully insured carriers in California (as well as other states) have relaxed their enrollment/underwriting rules, so that more people could enroll during the COVID-19 crisis, so individuals have had MANY opportunities to enroll.
“The exchange issued and extended numerous special enrollment periods and agents worked around the clock to ensure that millions of Californians were able to maintain coverage in existing or new channels to meet their needs,” stated Maggie Stedt. “Our members also worked with regulators to ensure that consumers were not being balanced billed for COVID treatments and services.”
Healthy California for All Committee Report 4
In a newly released report from the “Healthy California for All” Committee, which was created by California Governor Gavin Newsom in 2019, with its purpose to “develop a plan for advancing progress toward achieving a health care delivery system for California that provides coverage and access through a unified financing system, including but not limited to a single payer financing system,” the committee is (in my personal opinion, and not necessarily that of the California Association of Health Underwriters) openly and purposefully attacking the employerbased health care system, as well as the successful government programs of Medicare and Medicaid (MediCal in California) and wants to replace it with a “unified financing system” (which many of us define as a single payer option), or something similar.
Governor Newsom stated “As our march toward universal coverage continues I am calling on the brightest minds- from public and private sectors- to serve in the Healthy California for All Commission to improve the health of our state.” We will discuss later in this article what “universal coverage” means. But I think I should point out that our Governor may not be 100% familiar with health insurance terminology. He seems to mix his terms frequently. The Governor and Newsom Administration recently called Covered California a public option, in his Proposed Budget Summary5, which it is not. “This year, the Budget proposes additional investments to continue this momentum on affordability and cover age in California’s health care system. Specifically, the budget includes bold plans to address health care cost trends, strengthen California’s public option [referring to Covered CA], lower prescription drug prices for all Californians, and continue progress towards universal health care. These efforts will focus on returning cost savings to consumers and employers and will align with the efforts of the Healthy California for All Commission, which is charged with exploring policy solutions that drive toward a unified health care system that is universal, affordable, high-quality, and equitable for all.”
In addition, Governor Newsom has referred to Medicare as a “single payer”6 model (which it is not): “However, to address this ongoing cost crisis in health care in the most effective way, we must have the federal tools to support California’s ability to provide quality healthcare for everyone, financed through a single-payer model like Medicare. We must have the tolls to innovate and expand the Affordable Care Act, even as we build towards a more comprehensive, universal system that works for patients, providers, and taxpayers alike.”
Yes, terminology is used incorrectly in both of these statements, but they may give us a more realistic idea of what ‘Universal Healthcare’ may look like for the Newsom Admimistration.
According to the Healthy California for all report, 46% of people in California are covered under employer-sponsored health insurance, 40% are covered by Public Medicare or Medi-Cal pro-grams in California, 5% are covered by the individual market, and 9% are uninsured. Let’s talk for a moment about the 9% uninsured that the report cited. That’s 3.5 million people that are uninsured. Of that 3.5 million, 550,000 are actually ELIGI-BLE for employer-sponsored coverage, but chose not to enroll, 370,000 are eligible for Covered California, over 400% of the FPL (meaning not eligible for premium subsidies), 610,000 are eligible for Covered California under the 400% FPL (eligible for a premium subsidy), 660,000 are eligible for Medi-Cal (i.e. no-cost health care coverage) and 1.3 million are undocumented. I’d like to point out an error in the above report… Premium assistance through Covered California is now available for in-comes up to 600% of the federal poverty level, not 400%. Subsidies reduce consumer health plan premiums considerably, so you or your clients may be eligible for no-cost MediCal. So the reality is, most of that 3.5 million number are eligible for some form of existing coverage. The 1.3 million undocumented are the largest portion of the remaining uninsured population. However, it should be noted that many receive services for births and hospitalizations through restricted scope Medi-Cal. There are also county services that are also available to undocumented residents, which does not count towards the fully insured numbers for purposes of the report. Those eligible for subsidized coverage may be surprised at how little they would have to pay, if they’d only go online to find out, or talk to a qualified health agent (preferably).
In the report, the committee recognizes the employer-based health care system, but quickly negates its effectiveness, due to insureds having to pay co-payments and deductibles, and calls pre-tax contributions a means to the loss of tax revenue. “Employer-sponsored insurance is paid for through the employer and worker premium contributions using pre-tax dollars, which means that federal and state governments essentially subsidize employer-sponsored insurance via foregone tax revenue. In addition, most plans require that workers or their family members make payments when they access care, typically via co-payments or deductibles.”
The report also discusses how “Consumers struggle with health insurance literacy.” The committee does recognize that here in California, “individual market consumers… face fewer challenges navigating the purchase of health insurance compared to consumers in most other states.” How-ever, they do not say why that is… We all know that is be-cause Covered California welcomed agents, and quickly discovered that their largest population of enrollment came from independent agents who enrolled their clients in Covered California. “Nevertheless,” the report continues, “California consumers have trouble evaluating health coverage options and making well-informed choices when their coverage source shifts or they move from one plan to another. Less educated Californians, those with limited English proficiency, and those with low levels of health literacy face particular obstacles related to the complexity of health insurance information.” The California Association of Health Underwriters has been involved with the creation of many educational materials for all of these Californians, and such materials are available on the CAHU website at cahu.org, through our Public Affairs committee, as well as through the CAHU Foundation. We look at this entire section of the re-port as an opportunity to promote the use of agents when consumers are making health care decisions.
In a section of the report entitled “How Will a Pandemic Affect California Health Care?,” the committee discusses “shortcomings” of our current system, but it fails to mention the obvious parts which I mentioned above….like premium subsidies available. Most Californians who lose job-based coverage have an option to maintain that coverage under the federal COBRA or state Cal-COBRA laws. If individuals find COBRA prohibitively expensive, they may elect to enroll in Medi-Cal or purchase insurance through Covered California in just a few short minutes with the help of an agent.
Committee Report Proposes to “Work Around” ERISA and Eliminate Self-Funded Health Plans
The most important provisions in the report, I feel, are the Committee’s attack not only on the employer-based health care system, but on ERISA. The Employment Retirement Security Act is federal law that has been around since 1974, and protects the rights of employees enrolled in health and welfare (health insurance) plans as well as retirement plans. Understand that the Committee Report proposes to use a somewhat crazy and awkward solution to basically just work around ERISA!
Let me first provide some background. Further into the Pandemic section of the report, they talk about how a “unified financing approach would allow the state to move toward a more accountable and equitable system. How-ever, because Californians are situated so differently to-day, moving to unified financing will involve change and disruption, particularly in the short run. To achieve a universal health care system that assures access, affordability, high qualify, and equity will require purposeful design decisions and transition planning.” Let’s think about this… Change and disruption doesn’t make things easier… it often makes things much harder! Yes, you have to elect to participate in things like Medi-Cal (or Medicaid in other states), but it works…. So now let me discuss how they anticipate changing our industry and the health insurance market, beginning with ERISA.
ERISA includes provisions that apply to many populations. First and foremost, self-funded health plans, but also to fully insured groups (those with over 100 employees must file 5500 forms and comply with other ERISA provisions, but ERISA also applies to smaller groups as far as requirements to have plan documents, summary plan descriptions, and other disclosure requirements), and union plans. I have to admit, I take this section very personally, as I’ve spent my entire career working with ERISA plans and self-funded plans. In addition, I personally have written many ERISA wrap-around Plan Documents for my full-insured groups, to assure that they comply with the federal law (as Certificates of Coverage generally do not meet ERISA requirements). So, some would call me very much an expert in this area. Given that this is my exper-tise, I will defend this area to the best of my ability. Please accept my apologies in advance if my emotions on this issue affect my words in this article.
It’s obvious that the report is designed to present a positive case for “unified financing” (single payer), as that is what it was tasked to do. However, the reckless attack on federal law is more than irritating… In my world, it’s almost criminal. I know that sounds harsh, so let me explain my views. (I sup-pose at this point, I should re-state that the views and opin-ions of the author are not necessarily those of the California Association of Health Underwriters, so CAHU, that’s my dis-claimer!)
I’d like to preface this section with some quotes from the pre-ERISA attack portion of the report, which of course leads up to the (in my opinion) most important and egregious sections.
The report then goes into steps to prepare to transition to Unified Financing (ie single payer), then goes into to revisiting employer contributions and obligations. In this section, the blatant attack on ERISA and self-funding begins.
“In developing a united financing policy, the state will need to address potential conflicts with the federal Employee Retirement Income Security Act (ERISA) in relationship to self-funded plans. Self-funded plans are those in which the em-ployer assumes the financial risk of employees’ health care cost and pays for their health care expenses directly rather by purchasing insurance and having the risk shifted to a third party. Very large employers are most likely to self-fund be-cause their size better positions them to forecast and spread risk, and because it allows them to offer uniform benefits to their employees nationwide, avoiding both state benefit man-dates and state-imposed insurance taxes. At least 5.5 million Californians are covered through self-funded employer arrangements.”
Let me just stop there to make some important points. First, an employer does not have to be “very large” to self-fund. Although some are smaller, most are 100 or more employees. The 100 to 500 market also does very well self-funding in many instances. And I will defend the ERISA rule that allows employers to have one set of plan rules, regardless of employee locations across state lines. That is one of the best ad-vantages to self-funding. For employers who operate in multiple states, this drastically reduces administrative and human resources costs.
The report goes on to state: “ERISA sets federal standards that apply to private sector employers that establish employee benefit plans. Intended to assure that multi-state employers can provide consistent benefit programs across multiple states, ERISA preempts ‘any and all State laws insofar as they may now or hereafter relate to any employee benefit plan’ covered by ERISA. ERISA does not prevent states from directly regulating health insurance carriers and the products they sell to employee benefit plans but does exempt self-funded ERSIA plans from state health insurance regulation. ERISA would preempt a prohibition on self-funded employer sponsored plans in the state.” This is all true, and they do have it footnoted with code sections. What they fail to state is how successful these provisions have been to keep the costs down for self-funded employers. Self-funded plans generally see 10 to 30% savings over fully insured plans of equal benefit value, and some plans, including reference-based pricing self-funded plans, can see even greater savings. And the convenience of having one set of plan rules for all participants is not only easi-er to administer, but generally less expensive for employers. As they said, 5.5 Californians are covered by self-funded plans. Nationally, that number increases drastically.
The report continues: “How ERISA’s complex provisions may apply within the context of a specific state policy construct would be subject to court interpretation. State single payer proposals offer a range of plans that include employer contributions, such as broad-based payroll taxes. Another approach could be to place restrictions on providers, for example prohibiting providers from accepting payment from any source other than the unified system or at any different rates. These strategies would allow employers to continue to offer a self-funded plan if they chose to do so. Employers’ decisions would depend on the perceived value to employees of the self-funded plan when compared to services available under unified financing at little or no additional cost. While strong legal arguments can be made for these approaches, given the high financial stakes, litigation is likely.”
Let me make this clear, in case you didn’t quite understand what was said here. What they are saying is that they could make it illegal for providers to accept payment from other sources or plans other than the unified system (single payer). In other words, they could defy federal laws, defy the right for an employer to self-fund their plans, which have proven to be cost-effective and successful over the long term, and they would put the burden on the providers to not accept their payments. So, the Committee’s conclusion is that they should choke off the private sector, self-insured market supply to the providers. In essence, they would try to ELIMINATE self-funded plans in California. (In the rest of the report, you will see that their intent is to eliminate all types of plans -all lines of group and individual coverages, as well as Medicare and Med-Cal). And, as they said, they would be willing to spend taxpayer dollars on a very expensive legal fight, and trust me, it would definitely result in a huge legal fight.
I discussed these ERISA provisions with my own legal counsel on ERISA. “Legal challenges are a certainty,” stated Marilyn Monahan of Monahan Law Office, and author of the “Legal Briefs” in the STATEMent, “with numerous stakeholders – including issuers, providers, employers, and plans, weighing in. Prolonged legal challenges will cause delays and confusion.” Not to mention plenty of expense.
“The ideas under consideration to avoid ERISA preemption – a payroll tax on employers, or restricting providers from taking reimbursements from plans – would strongly discourage an employer that wanted to maintain its own self-funded plan,” Marilyn continued. “A state-by-state approach to restructuring health care will create numerous legal and administrative challenges. ERISA was intended to create a uniform system of regu-lations across the country, so that employers were not subjected to piecemeal regulations. The benefits of a uniform approach are particularly important to multi-state employers, including employers that hire remote workers who may live anywhere in the country.”
The truth is on our side. Self-funding works. It’s plain and simple. And our group, individual and Medicare markets work. We just have to get that message out.
THE POLITICAL ENVIRONMENT
I think I should start this section with a reminder that California entered 2020 with a budget surplus, is now in a serious budget deficit position. To pass such a state solution, you need federal dollars. The federal government can deficit-spend. The state cannot.
In the current political environment, we know there will be a lot of talk about changing the health care system. Understand that the Democratic super-majority in California will have a HUGE part in what happens here. California’s legislature has more than a 2/3 democratic majority, and 2/3 also happens to be the vote requirement to pass taxes. Further, the Democratic platform supports single payer. In our California primary in March, neither Presidential Democratic nominee Biden nor Kamala Harris won California. Bernie Sanders did, and he is all about single-payer. In 2017, SB 562 passed in the California Senate, but the Assembly op-posed it due to no identified funding source; the Healthy California Committee Report paves the way for deficit spend like the federal government can. Which means that in a year like 2020 when California is pro-jecting a $54 billion deficit, healthcare services, or other vital public services would most likely be on the chopping block. Subsequently you could also see tax increases imposed on many Californians at a time they could least afford it.”
So, I ask, is now the time to take on the single payer fight? Can California, with its huge deficit, afford to take on a $400 Billion single-payer plan, plus a legal federal battle over ERISA and the right to self-fund? You and I may think not, but legislators in Sacramento, and possibly the federal government, should the Biden/Harris ticket win in November, may see it as a longer-term possibility.
It’s an election year. The fight will be vocalized in the media. I asked Mike Ferguson of SIIA what his thoughts were on this, and what we should expect. “The components of a robust government participation in the HC system are becoming more sophisticated in their arguments, and I think what is most effective and what you’re going to see, is that instead of simply saying we need more government control and putting in contrast with the pri-vate market, they’re going to start pointing out problems with the existing private marketplace. The goal is to create a narrative by which the private market looks as bad as possible.” He continued, “They want to muddy up the waters, and say, yes, there are some problems, there are some issues with a gov’t run health care system; we’ll figure those out of course, but it’s not like we’re comparing to a system that runs well. Really, it’s trading a smaller set of problems for a larger set of problems that we al-ready know are happening in the private marketplace. The critics of government- controlled system are theorizing or projecting potential issues, where in the private marketplace, there are is-sues that are tangible right now. You’re going to see more and more thinktanks and thought-leaders on that side of the political spectrum that are going to be poking holes in the private healthcare system. There are more opportunities to poke holes in the existing private marketplace. You can certainly critique fully insured carriers over their profit margins, and other business practices… it’s harder to critique the self-funded marketplace, but I’m sure you can find a situation where some plan participant had a bad outcome. Maybe a claim was denied, or something went wrong in the process. You can pick your scenario. Given the law of large numbers, you can find something that is not working well, on a case by case basis in our marketplace, so we need to be prepared for that.”
I’d like to conclude this article with some reader takeaways, or a summary message to our readers.
What are the Main Messages & Takeaways for Our Readers?
I’d like to try to summarize and give our readers some key takeaways and messages as we go forward.
- Know how to respond to attacks on the employer-based health care system: The employer- based health care system has been working well for many years. It currently covers nearly half of the insureds in our country. The employer-based marketplace has been stable over a long period of time and allows employers to offer robust health care plans at affordable rates. Instead of blasting single payer, perhaps a more politically correct response should be to point out the good in the employer-based health care marketplace;
- A) The employer-based health care system is the one segment of the market that has worked very well over a long period of time. It’s the most stable part of our health insurance market.
- B) Employers use health benefits as a good recruiting and retention tool.
- C) Employees like receiving employer-based health coverage. It’s affordable and it’s easy.
- The ACA created exchange Marketplaces to assist small employers and individuals in getting affordable coverage. Our Covered California is the most successful Marketplace in the country, and it provides subsidies for individuals up to 600% over the Federal Poverty Line, and easily allows people to qualify for Medi-Cal. In addition, the use of agents is a no-cost and easy solution for individuals and small employers to get the help they need to understand how to enroll and see what is offered to them.
- Understand the message: The Healthy California For All Committee’s intention is to get rid of the current combination of private sector (employer-based system) health care system and public system (Medicare and Medi-Cal) and replace it with unified financing system. Understand what that means. Governor Newsom says a unified financing system, including but not limited to a single payer financing system. Keep in mind that our Governor also has misstated important terminology. Many of us believe that the Healthy California For All Committee report this is a road map to single payer. After all, that’s what the committee was tasked to do…. Find financing to pay for single payer.
- Understand the difference between Universal Health Care and Universal Access to Health Care. CAHU and NAHU want Universal Access to Health Care and pro-mote it. That’s what we want. We want to do it with a combination of private and public financing. The ACA has made many strides that are working. No pre-existing condition exclusions, no plan maximums, the ability to go to the Marketplaces and get cover-age with possible subsidies or no-cost Medi-Cal (or Medicaid) coverage for the lowest income families.
It has become obvious that those speaking about single-payer, universal healthcare and “Medicare for all” are using those terms interchangeably. These terms are not interchangeable and already have a set definittion of what they are and what they are not. For ex-ample, universal access to healthcare is a broad term for a program(s) that makes some level of basic coverage available to all (likely through a government program), but also allows for private insurance as choice to the consumer. Universal access to health care which includes a private insurance option would allow consumers and employers to continue their current types of health plans, assuming those plans offer at least the basic coverage required. Some examples include Canada, United Kingdom, Germany and Japan.
MEDICARE FOR ALL is one type of universal health care plan where basic coverage is provided through an expansion of the federal Medicare program, but this type of plan would still allow for the purchase of private insurance, as it does currently, and is administered by an insurance company, not by the state. This is not what the Healthy California Act (SB 562) pro-poses. Healthy California Act proposes a single payer plan.
Single-payer is a system in which all residents pay the state – via taxes in amounts determined by the state – to cover all healthcare costs for all residents. This would end all individual’s option to buy or not buy health coverage from private insurers based on their specific needs and ability to pay. Both the Healthy California Act and the New York Health Act are true single-payer plans, which would eliminate all private and public insurance programs, including Medicare, Medi-Cal, Veteran’s health care, among others. The actual funding of a “single-payer” system comes from all or a portion of the covered population via new taxes.
For more information, to go www.cahu.org, or email info@cahu.org. - Learn your “elevator speech” in response to single payer. The expense to take on such a system will exceed, according to the state of California during the SB 562 fight, over $400 Billion. That is DOUBLE the existing budget for the entire state. Re-member that you’d lose your ability to choose your plan and doctors. Understand that single payer results in shortages and long wait times. Understand that single payer would likely result in many doctors leaving the profession. Understand that it costs a lot of money… Higher taxes per family and per employer. Is this what we want?
Author’s Note: I’d like to thank the contributors to this article: Maggie Stedt, Brad Davis, and Faith Borges of CAHU, Mike Ferguson of SIIA, and Marilyn Monahan of Monahan Law office.
Disclaimer: The opinions stated in this article are the opinions of the author, and not necessarily those of the California Association of Health Underwriters. This article is not intended to provide legal advice of any kind. We always advise you to consult your own legal counsel as situations vary.
Footnotes: 1) “The COVID-19 Pandemic and Resulting Economic Crash Have Caused the Greatest Health Insurance Losses in American History,” By Stan Dorn, July 13, 2020, Families USA; 2) “Millions Have Lost Health Insurance in Pandemic,” By Sheryl Gay Stolberg, July 13, 2020, The New York Times; 3) “US Health Insurers Profits Boom Amid Pandemic,” By Niall McCarthy, August 6, 2020, Forbes; 4) “An Environmental Analysis of Health Care Delivery, Coverage and Financing in California,” Report by Healthy California For All, Final Report: August, 2020; 5) Governor Newsom’s Proposed Budget Summary, page 25, at http://www.ebudget.ca.gov/2020-21/pdf/BudgetSummary/HealthandHumanServices.pdf; 6) Governor Newsom’s Administration letter to President Trump and Congress, linked at: https://www.gov.ca.gov/wp-content/uploads/2019/01/1.7.19-Letter-to-the-White-House-and-Congress.pdf
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